DISPUTES RELATING TO VALUING TANGIBLE AND INTANGIBLE ASSETS

CD: Could you provide an insight into the increasing importance of a company’s intangible assets? How inherent are they to a company’s value, alongside ‘traditional’ tangible assets?

Dimech-DeBono: Intangible assets include technology-related assets such as patented technology, marketing -related assets such as trademarks or brands, customer- and supplier-related assets such as customer lists. Over the last 20 years companies have discovered the importance of valuing and protecting their intangible assets. The importance of a brand, for example, emanates from the fact that a certain brand will give the company information relating to its competitive advantage that translates into factors such as customer loyalty and superior revenue generation. In business valuation, intangibles certainly contribute to value but these are not necessarily considered separately until companies account for a transaction through purchase price accounting where the value is allocated specifically to the different intangible assets.

CD: What are some of the techniques commonly used to value assets? What specific approaches are employed in the case of intangibles, which can be harder to define and quantify?

Dimech-DeBono: Assets can be valued using a number of approaches, namely, using an income approach such as discounted cash flow, a market approach such as comparable company and transaction multiples, and a cost approach. Similarly, intangible assets can be valued using a cost approach, income approach or a market approach depending on the economic utility, transferability and stage of the asset’s life. Since each class of intangible assets possesses unique characteristics they pose significant valuation challenges. Assets, such as patents, with limited utility may have a discrete period of life for economic exploitation, however assets such as franchise and licence agreements have characteristics of transferability and non-specific utility that could enhance or diminish value. Since intangible assets are generally illiquid and hard to transact there are no readily available market prices, which poses the greatest challenge to their valuation.